Don’t Confuse Accumulate with Speculate | Accumulator Contracts Multiply Risks and Rewards

“MAKE YOUR MORTGAGE” AND MORE

Accumulator contracts are another way of taking advantage of profitable spikes in the markets, says Steve Johnson, Iowa State University Extension farm management specialist.

He speaks of one grower who jumped at 2011 crop-marketing opportunities. In early spring 2010, the grower priced much of his 2011 corn via an accumulator contract at $4.45 December futures with a knock out of $3.40. “But if he was knocked out, the remainder was priced at $4.05 through put options,” says Johnson.

“The grower said, ‘This pays the mortgage payments, and that was all I wanted. I think we have a potential for a big crop coming and prices could go lower.’”

Accumulators can also benefit country elevators and other grain handlers to justify the cost of offering them, says Johnson. “There are improved efficiencies of grain origination and timeliness of grain delivery through volume purchases and also reduced grain handling and transportation costs
.

“It’s a tool to target specific farms that deliver direct to processors, terminals or feedlots and have on-farm storage and truck transportation.”

Investigate whether the double-up aspects of accumulator contracts are right for you. 

Late November 2010